Shares still look expensive for an over-leveraged U.K. grocer with ambiguous growth prospects

Some investors clearly think the worst is over for Tesco. Amid the wider market rout, the U.K. supermarket giant’s shares have risen about 10% this year as figures for market share and Christmas sales from peers J Sainsbury and WM Morrison have beaten expectations. But Tesco’s shares, like its goods, are no bargain.

Tesco’s Thursday update gave the bulls further ammunition. Like-for-like sales over the six weeks to Jan. 9—the...